Finance minister Pranab Mukherjee on Wednesday said India's economy is in a “difficult situation” because of slowing growth, stubborn inflation and a widening fiscal deficit, but its basic fundamentals are strong.
"The economy is in a difficult situation but that does not mean that we shall have to start eating lizards,” Mukherjee said in the Lok Sabha, the lower house of Parliament.
India's economic growth slumped to 6.9% in the July-September quarter against the budgetary target of 9% growth for 2011-12. During the first half of the fiscal, the economy grew by 7.3%.
Mukherjee said the projection of 9% growth during the budget was not a pipe dream, but the unexpected high prices of oil and other commodities coupled with a slowdown in global economies, notably in Europe and the US, had hit the Indian economy hard.
"The hard fact is there are certain situation on which you do not have a control but you have to face the consequences,” he said.
The finance minister said because of the high oil and other commodities prices in the international market, expenditure on oil, fertiliser and food subsidies has increased exponentially, widening the fiscal deficit. He said fertiliser subsidies were likely to increase to Rs 90,000 crore against the budgetary target of Rs 40,000 crore.
"During the budget in February, average oil price of Indian basket I assumed $90 per barrel. However, oil price has been consistently at around $110 per barrel,” he said.
However, Mukherjee emphasised that the basic fundamentals of the Indian economy were strong. “Basic fundamentals of the Indian economy are still strong. Rate of savings is high. Yes, it is not as high as 35-36% but it is around 33-33.5%. Rate of Investment is around 34-35% despite depression.”
He said the proposed reforms could help improve the situation.
“I do believe that things can improve if the institutions strengthened, if Parliament functions, if this house debates, discusses and decides for which it is meant, you will see the atmosphere will change,” he said.
Mukherjee said the slowdown in growth was a cause of anxiety.
“From 2004-05 to 2007-08, we grew at 9%. Therefore we placed our standards high and from there we have come down. That's why it is my anxiety,” he said.
Indian economy grew 8.5% in 2010-11. In the union budget, Mukherjee said growth target was 9%, plus minus 0.25% for 2011-12. However, the growth declined to 7.7% in first quarter and it slumped further to 6.9% in the second.
"There was a time when these%age could have been an object of celebration when we place it in perspective on the economic development and growth of this country. From 1951 to 1979 we grew at a rate of 3.5%, whole of 1980s we grew at 5%, whole of 1990s we grew at 5.6%, even in the first half of the last decade we grew at around 6%,” he said.